Coal Is History. Or Is It?

The conventional wisdom is that dirty, polluting coal is the fuel of the past, and that any day now the power plants that burn coal will be phased out and shut down.

Taking the place of coal will be clean-burning natural gas and clean, green solar and wind power.

Glancing at the headlines you might really think that this fantasy was coming to pass.

Why just today the Sierra Club is out with an announcement that its Beyond Coal campaign is halfway to its goal of shutting down a third of U.S. coal plants. Wow!

With 12,000 megawatts of new wind power last year and 30% growth in solar power, U.S. carbon dioxide emissions fell 3.7% in 2012.

President Obama in his State of the Union address said that he would "direct my cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy" -- most likely by continuing to tighten emissions controls, regulating carbon dioxide as a pollutant and effectively banning any new coal-fired power plants.

Earlier this week the giant power utility AEP announced that, in a settlement with the EPA and several states, it was shuttering three coal-fired plants in Indiana, Ohio and Kentucky with 2,000 megawatts of generation capacity. AEP will also be investing $5 billion to install new emissions reduction technology at some of its other coal plants. And to help replace the coal power it will build 200 mw of wind and solar installations. The Sierra Club called it a "major victory."

The story sounds even better at the Tennessee Valley Authority, which in 2012 reduced its coal consumption by 16% to about 30 million tons. It's in the midst of retiring 2,000 mw of coal capacity by 2017. Last year it completed a new 1,000 mw gas-fired plant in Tennessee to help replace the four coal units retired at the same site. For the first time in memory TVA got less than half of its power from coal.

Thanks to natural gas prices (brought about by the boom in fracking) hitting a low of $1.85 per MMBtu last April, in 2012 generators switched a bunch of their electricity generation from coal to natural gas. Nationwide that switching amounted to an uptick of some 8 billion cubic feet a day of gas consumption, offsetting millions of tons of coal.

As a result, coal's contribution to nationwide power generation fell to 37% in 2012 down from 49% in 2007. That's a precipitous drop for an industry that operates on such a massive scale. Natural gas accounts for 30% of power generation fuel.

So we're on our way to getting rid of coal, right?

Not at all.

The U.S. Energy Information Administration says that with natural gas prices now on the rise, (around $3.50 per MMBtu now) there will be less switching in 2013 than in 2012. In fact, the EIA figures that gas burned to make electricity will actually fall from a record 25 bcfd in 2012 to 23.1 bcfd in 2013.

And while the amount of coal consumed by American power generators is down about 15% from the 1 billion tons per year average of the 2000s, the EIA expects the domestic coal burn to inch up to 859 million tons in 2013 and 870 million in 2014.

And then there's this insight that should take the wind out of the anti-coal crowd's sails. The EIA estimates that in 2012 exports of U.S. coal hit a record 124 million tons. That's more than double the average 54 million tons during the 2000s. Add those export tons with the amount of coal burned domestically, and the amount of American coal being burned a year worldwide has barely budged at all.

There are some differing projections. SNL Financial expects an additional 1.65 bcfd of coal-to-gas switching this year, mostly in the eastern U.S., while Platts figures 5 bcfd of switching could be possible.

Over the longer term, coal generation will decrease and gas-fired plants will gain share. But because of federal and state air regulations, not because gas is cheaper. According to Platts, in the Rocky Mountain region it's about $15 cheaper to generate 1 megawatthour of power with coal instead of gas. In the Southwest, coal's advantage is closer to $9 per MWh.

To hear the environmental stalwarts tell the story of the future, natural gas is supposed to be our bridge fuel to a bright new world of renewable energy, with solar panels on every roof and windmills in every town.

Yet that day remains frustratingly far off. The installed base of solar installations in the United States jumped an impressive 30% in 2012, thanks in part to a glut of cheap panels from China, while installed wind capacity is growing at a rate of about 7%, according to the EIA.